Fourth Quarter 2014 Earnings Conference Call February 4, 2015
Cautionary Note Regarding Forward-Looking Statements Certain information contained in this presentation is forward looking information based on current expectations and plans that involve risks and uncertainties. Forward looking information includes, among other things, statements concerning projected costs and schedules for the completion and start-up of ongoing construction projects, including estimated costs, the potential mitigation of forecasted delays and the recovery of liquidated damages related to the Plant Vogtle expansion, as well as expected impact to customers, earnings per share guidance, the economic outlook, expected sales growth, projected capital expenditures and projected financing plans. Southern Company cautions that there are certain factors that can cause actual results to differ materially from the forward looking information that has been provided. The reader is cautioned not to put undue reliance on this forward looking information, which is not a guarantee of future performance and is subject to a number of uncertainties and other factors, many of which are outside the control of Southern Company; accordingly, there can be no assurance that such suggested results will be realized. The following factors, in addition to those discussed in Southern Company s Annual Report on Form 10 K for the year ended December 31, 2013, and subsequent securities filings, could cause actual results to differ materially from management expectations as suggested by such forward looking information: the impact of recent and future federal and state regulatory changes, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry, environmental laws including regulation of water, coal combustion residuals, and emissions of sulfur, nitrogen, carbon dioxide, soot, particulate matter, hazardous air pollutants, including mercury, and other substances, and also changes in tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations; current and future litigation, regulatory investigations, proceedings, or inquiries, including pending Environmental Protection Agency civil actions against certain Southern Company subsidiaries, Federal Energy Regulatory Commission matters, and Internal Revenue Service and state tax audits; the effects, extent, and timing of the entry of additional competition in the markets in which Southern Company s subsidiaries operate; variations in demand for electricity, including those relating to weather, the general economy and recovery from the last recession, population and business growth (and declines), the effects of energy conservation measures, including from the development and deployment of alternative energy sources such as self generation and distributed generation technologies, and any potential economic impacts resulting from federal fiscal decisions; available sources and costs of fuels; effects of inflation; ability to control costs and avoid cost overruns during the development and construction of facilities, which include the development and construction of generating facilities with designs that have not been finalized or previously constructed, including changes in labor costs and productivity factors, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contractor or supplier delay, non performance under construction or other agreements, operational readiness, including specialized operator training and required site safety programs, unforeseen engineering or design problems, delays associated with start up activities (including major equipment failure and system integration), and/or operational performance (including additional costs to satisfy any operational parameters ultimately adopted by any Public Service Commission ( PSC )); ability to construct facilities in accordance with the requirements of permits and licenses, to satisfy any environmental performance standards, and the requirements of tax credits and other incentives, and to integrate facilities into the Southern Company system upon completion of construction; investment performance of Southern Company s employee and retiree benefit plans and the Southern Company system s nuclear decommissioning trust funds; advances in technology; state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate actions relating to fuel and other cost recovery mechanisms; legal proceedings and regulatory approvals and actions related to the Plant Vogtle expansion, including Georgia PSC approvals and Nuclear Regulatory Commission actions and related legal proceedings involving the commercial parties; actions related to cost recovery for the integrated coal gasification combined cycle facility under construction in Kemper County, Mississippi ( Kemper IGCC ), including actions relating to proposed securitization, Mississippi PSC approval of Mississippi Power Company s proposed rate recovery plan, as ultimately amended, which currently includes the ability to complete the proposed sale of an interest in the Kemper IGCC to South Mississippi Electric Power Association, the ability to utilize bonus depreciation, which currently requires that assets be placed in service in 2015, and satisfaction of requirements to utilize investment tax credits and grants; Mississippi PSC review of the prudence of Kemper IGCC project costs; the outcome of any legal or regulatory proceedings regarding any settlement agreement between Mississippi Power Company and the Mississippi PSC, the March 2013 rate order approving retail rate increases consistent with the terms of the settlement agreement, or the State of Mississippi legislation designed to enhance the Mississippi PSC s authority to facilitate development and construction of baseload generation in the State of Mississippi; the inherent risks involved in operating and constructing nuclear generating facilities, including environmental, health, regulatory, natural disaster, terrorism, and financial risks; the performance of projects undertaken by the non utility businesses and the success of efforts to invest in and develop new opportunities; internal restructuring or other restructuring options that may be pursued; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries; the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due and to perform as required; the ability to obtain new short and long term contracts with wholesale customers; the direct or indirect effect on the Southern Company system s business resulting from terrorist incidents and the threat of terrorist incidents, including cyber intrusion; interest rate fluctuations and financial market conditions and the results of financing efforts, including Southern Company s and its subsidiaries credit ratings; the impacts of any potential U.S. credit rating downgrade or other sovereign financial issues, including impacts on interest rates, access to capital markets, impacts on currency exchange rates, counterparty performance, and the economy in general, as well as potential impacts on the benefits of the U.S. Department of Energy loan guarantees; the ability of Southern Company s subsidiaries to obtain additional generating capacity at competitive prices; catastrophic events such as fires, earthquakes, explosions, floods, hurricanes, droughts, pandemic health events such as influenzas, or other similar occurrences; the direct or indirect effects on the Southern Company system s business resulting from incidents affecting the U.S. electric grid or operation of generating resources; and the effect of accounting pronouncements issued periodically by standard setting bodies. Southern Company expressly disclaims any obligation to update any forward looking information. 2
Outstanding Operations Customer Satisfaction: Top 5 spots in annual benchmark survey High rankings in J.D. Power & Associates surveys Alabama Power rated America s most-trusted residential electric utility Reliability: EFOR is at industry-leading levels Set all-time system records for transmission & distribution metrics (SAIDI & SAIFI) 3
Vogtle Construction Site as of January 21, 2015 Unit 3 Cooling Towers Unit 3 Unit 4 Nuclear Island Heavy Lift Derrick Annex Building Turbine Island Nuclear Island Condenser Assembly Unit 4 Turbine Island Switchyard Module Assembly Building Containment Vessel Assembly 4
Vogtle Construction Update Unit 3 Unit 4 Progress Continued CA01 module assembly Continued Nuclear Island wall placements Set CA05 Began Auxiliary Building metal decking installation Completed Cooling Tower Near term Concrete inside CVBH 1 to EL 83 ft Concrete under CVBH 1 to EL 90 ft 6 in. Continue Auxiliary Building metal decking installation Progress Continued CA20 module fabrication Continued 500kV switchyard upgrades Continued Nuclear Island wall placements Began Cooling Tower Near term Set CA04 Set CB65 and CB66 Continue Nuclear Island wall placements On the horizon Continue Auxiliary Building metal decking installation Shield Building panel installation Concrete under CVBH 1 to EL 100 ft On the horizon Concrete in CVBH 1 to EL 76 ft 6 in. Concrete under CVBH 1 to EL 82 ft 6 in. 1. CVBH: containment vessel bottom head 5
Vogtle Units 3&4 Nuclear Island Activity Current View Formwork Concrete Placed Unit 3 Unit 4 CA04 CB65 CA05 Lower Ring Metal Decking Concrete inside CVBH Unit 3 Unit 4 Lower Ring CA04 Near Term CA04 CB65 CA05 CB65 Formwork Metal Decking Concrete Placed 6
Vogtle Project Update Priorities are safety and quality Projected impact to rates remains between 6% and 8% VCM 11 vote scheduled for February 19 th Reviewing contractors revised schedule forecast VCM 12 to be filed February 27 th Concrete placement in Unit 3 auxiliary building area Unit 4 nuclear island 7
Kemper Project Update Expected in-service date for remainder of project is 1st half 2016 Three parallel paths toward first syngas production in the third quarter Operational training Control systems validation Start-up & check-out Working towards next set of milestones Gasifier Air Flow Testing Gasifier First Fire Continuing constructive regulatory discussions 8
2014 Earnings Results Q4 YTD Earnings Per Share $0.33 $2.21 Impact of increase in Kemper cost estimate $0.05 $0.59 Earnings Per Share x-items $0.38 $2.80 9
FY2014 vs. FY2013 Adjusted EPS Drivers 17 2 Wholesale 2 Other Operating Revenues -33 23 Weather $2.71 3 Usage & Economic Growth Other Revenue Effects Non-fuel O&M -4 Other Taxes 4 Other Income & Deductions 1 SPC -6 Shares $2.80 Traditional Operating Companies 14 FY13 FY14 Note: Excludes 2014 & 2013 EPS impacts of -59 & -83, respectively, for updated Kemper IGCC cost estimates, 2013 EPS impact of -2 for the Leveraged Lease Restructure, and 2013 EPS impact of +2 for the MCAR Insurance Settlement; GAAP EPS was $2.21 for 2014 vs. $1.88 for 2013 10
Retail Sales Growth vs. Prior Year Quarter-to-date As Reported Weather Normal As Reported Year-to-date Weather Normal Residential -0.2% -0.2% 5.5% 0.0% Commercial -0.8% -0.3% 1.3% -0.4% Industrial 2.3% 2.3% 3.3% 3.3% Total Retail Sales 0.5% 0.6% 3.3% 0.9% 7 Quarters of Continued Industrial Sales Growth Industrial Sales Growth % vs. Prior Year 4.8% 4.8% 2.6% 2.8% 3.0% 2.3% 0.6% 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 11
2015 Outlook Economic Roundtable Expected 2015 Sales Growth GDP projected growth of around 3.0% Industrial activity will continue to improve, but constrained by strengthening dollar and low oil prices 1.0% 1.4% 1.7% 1.3% Improving housing market and consumer spending could offset headwinds Global economy expected to remain sluggish Residential Commercial Industrial Total Retail Sales 12
$16.6B Capital Expenditure Forecast $6.8B '15 - '17 $5.5B Total 16.6 So Power Placeholders for Growth 1.9 $4.3B Total Base 14.7 Southern Power Base 1.2 Environmental 2.2 New Generation 2.6 Transmission 1.9 Distribution 2.4 Generation Maintenance 2.5 Nuclear Fuel 0.8 2015 2016 2017 Other 1.0 Notes: Totals may not add due to rounding and amounts are subject to change in the 2014 10-K. Includes amounts for which Mississippi Power will not seek recovery above the $2.88B Kemper IGCC cost cap, net of DOE grants and cost cap exceptions, of $0.8B & $0.1B in 2015 and 2016, respectively. 2016 includes $0.6B of SMEPA s expected 15% ownership share. Southern Power Base includes $0.7B & $0.2B of identified growth projects in 2015 & 2016, respectively. 13 13
2015 2017 Financing Plan ($ in millions) 2015 2016 2017 2015-2017 Georgia DOE Loan $ 1,000 $ 550 $ 300 $ 1,850 Mississippi Securitization - - 1,000 1,000 Mississippi Bank Debt 1,250 - - 1,250 Capital Markets Alabama $ 700 $ 300 $ 550 $ 1,550 Georgia 600 1,000 400 2,000 Gulf - 125 100 225 Mississippi - - 500 500 Southern Power (1) 1,000 250-1,250 Holding Company (2) 750 600 500 1,850 Total Capital Markets $ 3,050 $ 2,275 $ 2,050 $ 7,375 Total Debt Issuances $ 5,300 $ 2,825 $ 3,350 $ 11,475 Common Equity Needs $ - $ - $ - $ - (1) Includes $500M and $250M in 2015 and 2016, respectively, for potential Southern Power growth projects (2) Includes $350M in 2015 for potential Southern Power growth projects 14
Earnings Per Share Guidance $2.88 2014 results at top of range* $2.80 2015 2014 $2.72 $2.76 Q1 2015 Estimate: $0.55 *Excludes 2014 EPS impact of -59 for updated Kemper Project cost estimates; GAAP EPS was $2.21 for 2014 15
Appendix
Q4 2014 vs. Q4 2013 Adjusted EPS Drivers 7 1-21 $0.48 Other Revenue Effects Other Operating Revenues Traditional Operating Companies -12 Non-fuel O&M 4-1 D&A Other Taxes -1 Interest Expense -1 Income Taxes 2 SPC 1 Parent & Other -1 Shares $0.38 Q4 2013 Q4 2014 Note: Excludes Q4 2014 & Q4 2013 EPS impacts of -5 & -3, respectively, for updated Kemper IGCC cost estimates and Q4 2013 EPS impact of +2 for the MCAR Insurance Settlement; GAAP EPS was $0.33 for Q4 2014 vs. $0.47 for Q4 2013 17
2015 2017 CapEx Forecast Functional Total $billions 2015 2016 2017 '15-'17 New Generation $1.3 $0.9 $0.4 $2.6 Environmental Compliance $1.1 $0.5 $0.6 $2.2 Generation Maintenance $1.0 $0.8 $0.8 $2.5 Transmission Growth 0.2 0.1 0.1 0.4 Transmission Maintenance 0.4 0.4 0.4 1.3 Total Transmission $0.6 $0.5 $0.6 $1.7 Distribution Growth 0.5 0.5 0.6 1.5 Distribution Maintenance 0.4 0.4 0.4 1.1 Total Distribution $0.9 $0.9 $0.9 $2.6 Nuclear Fuel $0.3 $0.2 $0.3 $0.8 General $0.3 $0.3 $0.4 $1.0 Traditional OpCo Total $5.4 $4.2 $3.9 $13.5 Southern Power Base $0.8 $0.3 $0.1 $1.2 Southern Power Expansion $0.6 $1.0 $0.3 $1.9 Total Consolidated $6.8 $5.5 $4.3 $16.6 Notes: Totals may not add due to rounding and amounts are subject to change in the 2014 10-K. Includes amounts for which Mississippi Power will not seek recovery above the $2.88B Kemper IGCC cost cap, net of DOE grants and cost cap exceptions, of $0.8B & $0.1B in 2015 and 2016, respectively. 2016 includes $0.6B of SMEPA s expected 15% ownership share. Southern Power Base includes $0.7B & $0.2B of identified growth projects in 2015 & 2016, respectively. 18
2015 2017 CapEx Forecast Company Total $billions 2015 2016 2017 '15-'17 Alabama 1.5 1.1 1.4 4.0 Georgia 2.4 2.4 2.1 6.9 Gulf 0.3 0.2 0.2 0.7 Mississippi 1.0 0.3 0.2 1.6 Other Subsidiaries 0.1 0.1 0.0 0.2 Traditional OpCo Total $5.4 $4.2 $3.9 $13.5 Southern Power 1.4 1.3 0.4 3.1 Total Capex $6.8 $5.5 $4.3 $16.6 Notes: Totals may not add due to rounding and amounts are subject to change in the 2014 10-K. Includes amounts for which Mississippi Power will not seek recovery above the $2.88B Kemper IGCC cost cap, net of DOE grants and cost cap exceptions, of $0.8B & $0.1B in 2015 and 2016, respectively. 2016 includes $0.6B of SMEPA s expected 15% ownership share. Southern Power Base includes $0.7B & $0.2B of identified growth projects in 2015 & 2016, respectively. 19
Generation Portfolio Diversity Capacity Factors Q4 YTD 2013 2014 2013 2014 Coal - PRB 79% 68% 74% 73% Coal - Non-PRB 25% 21% 30% 44% Gas - Combined Cycle 65% 71% 66% 64% Energy Mix Q4 YTD 2013 2014 2013 2014 Natural Gas 42% 49% 41% 40% Coal 37% 31% 38% 40% Nuclear 17% 16% 16% 16% Hydro/Other 4% 4% 5% 4% 20